MT4 ECN Bridge
Encyclopedia
MT4 ECN Bridge is technology allowing user to access ECN
marketplace through MetaTrader 4
trading platform.
in general are divided into two categories: Dealing Desk (DD) brokers (market maker
s) and Non-Dealing Desk (NDD) brokers.
executed through this broker ever reach the actual market but rather stay in that broker’s inner liquidity pool
. Spreads
and quotes are decided by the broker. A DD broker is a specific broker who employs dealers that may either accept or reject orders from retail traders (re-quotes) depending on whether or not the broker is interested in accepting the specific order or not.
to the interbank Forex market
. In the past this kind of brokerage was the privilege of institutional clients with large sums and huge trading turnover. With recent technological developments it has become available even for the retail trader.
(MT4) is world’s preferred Forex trading platform due to its user-friendly interface and easily comprehensible programming features. More than 60% of all brokers offer this platform and more than 90% of the total retail forex trading volume is executed through it. Unfortunately MT4 wasn’t designed to be used by NDD Brokers.
rather than ECN
environment (see table below).
ECN
means direct access to the Marketplace
where you can trade with other traders. Your orders are actually displayed in the market and are seen by others, who in turn can introduce their own orders and if the prices match, a deal is complete. A solution of bridging MT4 and ECN option appeared in 2006 through some mutual relationships in Boston, MA, developers worldwide quickly capitalized on the concepts as it quickly gained popularity from FX dealers globally. (see Pic.1).
MT4 Bridges are now offered by several firms globally as a solution to enable
Electronic Communication Network
An electronic communication network is the term used in financial circles for a type of computer system that facilitates trading of financial products outside of stock exchanges. The primary products that are traded on ECNs are stocks and currencies. The first ECN, Instinet, was created in 1969...
marketplace through MetaTrader 4
MetaTrader 4
MetaTrader 4, better known as MT4, is an electronic trading platform widely used by online retail foreign exchange speculative traders. It was developed by MetaQuotes Software and released in 2005. The software is licensed to foreign exchange brokers who provide the software to their clients. ...
trading platform.
Background
Retail Forex brokersForeign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
in general are divided into two categories: Dealing Desk (DD) brokers (market maker
Market maker
A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. From a market microstructure theory standpoint, market makers are net sellers of an option to be...
s) and Non-Dealing Desk (NDD) brokers.
Dealing Desk
In the Dealing Desk model almost none of the ordersOrder (exchange)
An order in a market such as a stock market, bond market, commodity market or financial derivative market is an instruction from customers to brokers to buy or sell on the exchange.These instructions can be simple or complicated...
executed through this broker ever reach the actual market but rather stay in that broker’s inner liquidity pool
Market liquidity
In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value...
. Spreads
Bid-offer spread
The bid–offer spread for securities is the difference between the prices quoted for an immediate sale and an immediate purchase...
and quotes are decided by the broker. A DD broker is a specific broker who employs dealers that may either accept or reject orders from retail traders (re-quotes) depending on whether or not the broker is interested in accepting the specific order or not.
Non-Dealing Desk
Non-Dealing Desk broker doesn't interfere in the dealing process providing his clients direct accessDirect access trading
Direct access trading is a technology which allows stock traders to trade directly with market makers or specialists, rather than trading through stock brokers....
to the interbank Forex market
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
. In the past this kind of brokerage was the privilege of institutional clients with large sums and huge trading turnover. With recent technological developments it has become available even for the retail trader.
MetaTrader 4 trading platform
MetaTrader 4MetaTrader 4
MetaTrader 4, better known as MT4, is an electronic trading platform widely used by online retail foreign exchange speculative traders. It was developed by MetaQuotes Software and released in 2005. The software is licensed to foreign exchange brokers who provide the software to their clients. ...
(MT4) is world’s preferred Forex trading platform due to its user-friendly interface and easily comprehensible programming features. More than 60% of all brokers offer this platform and more than 90% of the total retail forex trading volume is executed through it. Unfortunately MT4 wasn’t designed to be used by NDD Brokers.
MT4 ECN bridge technology
There were several attempts at creating a bridge from MT4 to the interbank market but they provided an STPStraight Through Processing
Straight-through processing enables the entire trade process for capital markets and payment transactions to be conducted electronically without the need for re-keying or manual intervention, subject to legal and regulatory restrictions...
rather than ECN
Electronic Communication Network
An electronic communication network is the term used in financial circles for a type of computer system that facilitates trading of financial products outside of stock exchanges. The primary products that are traded on ECNs are stocks and currencies. The first ECN, Instinet, was created in 1969...
environment (see table below).
| MT4 ECN bridge | MT4 STP bridge | |
|---|---|---|
| Client’s orders go directly to the marketplace and are displayed there as they are | Yes | No |
| Clients can see and use market depth (Level 2) | Yes | No |
| Partial execution is implemented | Yes | No |
| Stability of work | Yes | No |
ECN
Electronic Communication Network
An electronic communication network is the term used in financial circles for a type of computer system that facilitates trading of financial products outside of stock exchanges. The primary products that are traded on ECNs are stocks and currencies. The first ECN, Instinet, was created in 1969...
means direct access to the Marketplace
Marketplace
A marketplace is the space, actual, virtual or metaphorical, in which a market operates. The term is also used in a trademark law context to denote the actual consumer environment, ie. the 'real world' in which products and services are provided and consumed.-Marketplaces and street markets:A...
where you can trade with other traders. Your orders are actually displayed in the market and are seen by others, who in turn can introduce their own orders and if the prices match, a deal is complete. A solution of bridging MT4 and ECN option appeared in 2006 through some mutual relationships in Boston, MA, developers worldwide quickly capitalized on the concepts as it quickly gained popularity from FX dealers globally. (see Pic.1).
MT4 Bridges are now offered by several firms globally as a solution to enable
Main features
- True ECNElectronic Communication NetworkAn electronic communication network is the term used in financial circles for a type of computer system that facilitates trading of financial products outside of stock exchanges. The primary products that are traded on ECNs are stocks and currencies. The first ECN, Instinet, was created in 1969...
execution - clients trade with other traders, orders are displayed and seen by others on the marketplaceMarketplaceA marketplace is the space, actual, virtual or metaphorical, in which a market operates. The term is also used in a trademark law context to denote the actual consumer environment, ie. the 'real world' in which products and services are provided and consumed.-Marketplaces and street markets:A...
; - Tight spreadsBid-offer spreadThe bid–offer spread for securities is the difference between the prices quoted for an immediate sale and an immediate purchase...
- there is only a difference between best bidBid priceA bid price is the highest price that a buyer is willing to pay for a good. It is usually referred to simply as the "bid."In bid and ask, the bid price stands in contrast to the ask price or "offer", and the difference between the two is called the bid/ask spread.An unsolicited bid or purchase...
and offerAsk priceAsk price, also called offer price, offer, asking price, or simply ask, is the price a seller states she or he will accept for a good....
prices, if a client places an order with a better price, it changes the spreadBid-offer spreadThe bid–offer spread for securities is the difference between the prices quoted for an immediate sale and an immediate purchase...
; - Fast execution - orders are executed within 0.3 sec on the server side;
- No conflict of interest - traders earn profit and dealers earn commission (see Background – Non-Dealing Desk);
- No re-quotes - a market order will be filled by the best price available (see Background – Dealing Desk);
- Possibility of partial execution - in case of insufficient liquidity the order can be partially executed while the rest will be displayed and seen on the marketplace;
- EA availability - clients can use all Expert Advisors without any limitations;
- Market depth - via special Add-in or MQL clients have access to the depth of the market (Level 2) - a measure of the size of volume available for transaction purposes for a particular instrument at a particular point of time. The best Offer (ASK) and the best BID are displayed in a table with the size available to buy or sell. Market depth displays orders that are currently in the market. When two orders match (buy and sell orders at the same price), they are filled and disappear from the market depth, the deal is registered in the trade history.
Difficulties of true ECN trading for retail traders
- Price volatilityVolatility (finance)In finance, volatility is a measure for variation of price of a financial instrument over time. Historic volatility is derived from time series of past market prices...
is much greater in comparison to quotes of market makerMarket makerA market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. From a market microstructure theory standpoint, market makers are net sellers of an option to be...
s who use fluctuations filtering while the NDD model provides direct access to interbank Forex marketForeign exchange marketThe foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
- the most volatile one; - Market makers’Market makerA market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. From a market microstructure theory standpoint, market makers are net sellers of an option to be...
quotes are not related to the volume, i.e. orders will be filled at the offered price without any relation to the deal volume. While the marketplaceMarketplaceA marketplace is the space, actual, virtual or metaphorical, in which a market operates. The term is also used in a trademark law context to denote the actual consumer environment, ie. the 'real world' in which products and services are provided and consumed.-Marketplaces and street markets:A...
presents the liquidityMarket liquidityIn business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value...
that is currently available, i.e. orders will be executed in the volume available at this certain price. That’s why traders have to be aware of the volume at the market and take this into account while trading.
See also
- Straight Through ProcessingStraight Through ProcessingStraight-through processing enables the entire trade process for capital markets and payment transactions to be conducted electronically without the need for re-keying or manual intervention, subject to legal and regulatory restrictions...
- Electronic Communication NetworkElectronic Communication NetworkAn electronic communication network is the term used in financial circles for a type of computer system that facilitates trading of financial products outside of stock exchanges. The primary products that are traded on ECNs are stocks and currencies. The first ECN, Instinet, was created in 1969...
- MetaTrader 4MetaTrader 4MetaTrader 4, better known as MT4, is an electronic trading platform widely used by online retail foreign exchange speculative traders. It was developed by MetaQuotes Software and released in 2005. The software is licensed to foreign exchange brokers who provide the software to their clients. ...
- Foreign exchange marketForeign exchange marketThe foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
- Direct access tradingDirect access tradingDirect access trading is a technology which allows stock traders to trade directly with market makers or specialists, rather than trading through stock brokers....
External links
- The US Securities and Exchange Commission
- MetaQuotes
- Investopedia
- Rous Technology
- MT4 to ECN bridge by Fair Trading Technology
- http://www.apbg.com/TECHNOLOGY/Technology.aspx